Patent Apocalypse

PATENT APOCALYPSE: WILL OIL STATES RESURRECT THE VICTIMIZED PATENT RIGHTS OF IPR?

By: Clint Maynard, Volume 102 Staff Member

Where does a patent go to die? Some patent holders might say the Patent Trials and Appeals Board (PTAB). Since the enactment of the Leahy-Smith America Invents Act [1] (AIA), patent holders have seen the rise of inter partes review (IPR)—an adversarial proceeding before the PTAB that allows a petitioner to challenge the validity of an issued patent.[2] Many patent holders have begun to fear IPR institution as a certain death sentence for a patent.[3] According to the United States Patent and Trading Office (USPTO), as of September 30, 2017, 81% of final written decisions in IPR proceedings declared some or all claims of a challenged patent to be invalid.[4] The high rates of patent invalidation have caused patent holders to question the fairness of IPR and look for ways to avoid the PTAB’s jurisdiction.[5]

Notwithstanding the concerns of many patent holders, it came as somewhat of a surprise last June when the Supreme Court granted certiorari in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC.[6] By taking the case, the Court—against the advice of the United States[7]—decided to rule on the constitutionality of IPR.[8] Only last year, the Court in Cuozzo Speed Technologies, LLCv.Lee upheld a more favorable standard of claim construction for patent challengers in IPRs than applied in district courts.[9] While the constitutional issue was not addressed in Cuozzo, the 6–2 decision seemingly lacked any skepticism towards the PTAB or IPRs.[10] The Court may have granted certiorari simply to close the door on the constitutional question, and thereby prevent the same argument from being raised in lower courts. But the Court does have a history of overruling the Federal Circuit.[11]

If the Court in Oil States holds that IPR violates the Constitution, what does that mean for the numerous patents that were previously invalidated by the PTAB?[12] Generally, in the context of civil litigation, judicial decisions are given retroactive effect.[13] Moreover, a law found to be unconstitutional is “inoperative as though it had never been passed.”[14] It would follow that any previous IPR decisions, including the many resulting in patent claim invalidations, decided under AIA law would be void.

To minimize the potential shock to the patent system, the Court could hold that the decision would only apply prospectively.[15] The Court has rejected the retroactive effect of a decision in cases where retroactivity could cause substantial “injustice and hardship” on litigants who relied on the prior law.[16] In Northern Pipeline Const. Co. v. Marathon Pipe Line Co., the Court held bankruptcy proceedings, under the Bankruptcy Reform Act, to be unconstitutional as violating Article III of the Constitution.[17] Briefly addressing the issue of retroactivity, the Court—applying the Chevron Oil test[18]— held that the decision only applied prospectively because retroactive application “would not further the operation of [the] holding, and would surely visit substantial injustice and hardship upon litigants who relied upon the Act’s vesting of jurisdiction in the bankruptcy courts.”[19] If the Court finds that IPRs, like the bankruptcy courts of the Bankruptcy Reform Act, run afoul of the Constitution, a balancing of the equities might favor prospective application. After all, petitioners have relied on the IPR proceedings under the AIA to challenge patents—many petitions being filed in response to infringement accusations.[20]

Of course, patent holders would prefer to test the validity of their patent claims under the due process requirements of federal courts.[21] But some patent holders in parallel litigation have also relied on the broad IPR estoppel provisions of the AIA.[22] Assuming these provisions would also be severed from the AIA, retroactivity could now make previously barred defenses available in federal court. Moreover, although vacated, the PTAB’s invalidity determination based on the prior art may leave patent holders questioning the value of their previously dead patent. Would it still be subject to invalidity through reexamination by the USPTO—the same agency that already previously invalidated the patent?[23] Is the patent worth trying to enforce? Even if patent holders find themselves with a patent seemingly back from the dead, it may not be the same as it once was. While many patent holders may disagree with a prospective application of an unconstitutional ruling in Oil States, it still may be the most equitable result.

See id. Some advocates for the rights of patent holders object to IPRs for lacking the due process requirements observed by federal district courts. See, e.g., Neal Solomon, IPRs Unduly Harm Patent Holders and Benefit Big Tech Infringers, IPWatchdog (Oct. 24, 2017), http://www.ipwatchdog.com/2017/10/24/iprs-unduly-harm-patent-holders-benefit-big-tech-infringers/id=89568/. District courts, when analyzing patent validity, apply a “presumption of patent validity,” a “clear and convincing” evidentiary standard of review, and a Phillips standard for claim interpretation. Id.See generally Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005) (en banc) (holding that claims should be given meaning that a “term would have to a person of ordinary skill in the art in question at the time of the invention”). Allergan, a pharmaceutical company, resorted to drastic measures in an attempt to avoid the PTAB’s jurisdiction. The company transferred some of its patents to the Saint Regis Mohawk Tribe and exclusively licensed the patent rights back, effectively affording the patents at issue the protection of the tribe’s sovereign immunity. Katie Thomas, How to Protect a Drug Patent? Give it to a Native American Tribe, N.Y. Times (Sep. 8, 2017), https://www.nytimes.com/2017/09/08/health/allergan-patent-tribe.html. ↑

The Supreme Court requested for the United States to advise on whether certiorari should be granted in Oil States. The United States took the position that certiorari should be denied. See Gene Quinn, Supreme Court To Decide if Inter Partes Review Is Unconstitutional, IPWatchdog (June 12, 2017), http://www.ipwatchdog.com/2017/06/12/supreme-court-inter-partes-review-unconstitutional/id=84430/; see also Brief for the Federal Respondent in Opposition, Oil States, 137 S. Ct. 2239 (Apr. 28, 2017) (No. 16-712). This is also not the first time that the Supreme Court has asked for the opinion of the United States in a patent case and subsequently rejected its advice. See SAS Inst., Inc. v. ComplementSoft, LLC., 825 F.3d 1341 (Fed. Cir. 2016), cert. granted sub nom. SAS Inst. Inc. v. Lee, 137 S. Ct. 2160 (2017); see also Brief for the Federal Respondent in Opposition, SAS Institute v. Lee, 137 S. Ct. 2160 (Apr. 5, 2016) (No. 16-969). ↑

The Court will address the sole issue of whether the IPR proceeding “violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.” Brief for Petitioner, at i, Oil States, No. 16-712 (U.S. Aug. 24, 2017), http://www.scotusblog.com/wp-content/uploads/2017/08/16-712-ts.pdf. The petitioner contends that the administrative proceeding “violates both Article III’s separation of powers and the Seventh Amendment’s right to a jury.” Id.↑

Cuozzo Speed Technologies, LLC v. Lee, 136 S.Ct. 2131 (2016). District courts interpret claims under the Phillips standard by giving meaning to terms how they would be understood to a person of ordinary skill in the art in question at the time of the invention. Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005) (en banc). The Court in Cuozzo, upheld the broadest reasonable interpretation standard for patent claim construction at the PTAB. Cuozzo, 136 S.Ct. at 2136. ↑

A study examining the Supreme Court reversal rates from 1999 to 2008 found that the Federal Circuit had the highest reversal rate of all the federal courts of appeals. Roy E. Hofer, Supreme Court Reversal Rates: Evaluating the Federal Courts of Appeals, Landslide, Jan.–Feb. 2012, at 8, 9–10 (finding that the Federal Circuit reversal rate was 83.3% for all cases and 92.3% for patent-related cases). ↑

The Chevron Oil three part test for the issue of retroactivity considers (1) whether the holding in question decided “an issue of first impression whose resolution was not clearly foreshadowed,” (2) whether the retroactive effect “will further or retard [the] operation” of the holding in question, and (3) whether retroactive application “could produce substantial inequitable results” in individual cases. Id. at 106–07. ↑

Northern Pipeline Const. v. Marathon Pipe Line Co., 548 U.S. 50, 88 (1982). The Court in Northern Pipeline also stayed the judgment to afford Congress the chance to cure the constitutional defects. Id.↑

Often an IPR proceeding for challenging a patent’s validity is brought in parallel to district court litigation involving the same patent. The accused infringer would typically file the petition before the USPTO. ↑